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Canada's policy makers are faced with unprecedented challenges as the country's manufacturing sector seeks its place in the global supply chain. Much like the sector itself, policy in this area needs to take on a more specialized, streamlined role that emphasizes adding value. While there is no magic bullet to grease a seamless transition for manufacturing companies or workers, with a majority government Conservatives are in a better position than ever to think creatively about how to help the more nimble companies survive and grow, and how to keep people from being left behind by the sea change. For an economy that exports about half of what it produces, and where manufacturing has long been a crucial source of decent-paying jobs for the bulk of the population that does not go to university, it's hard to find a bigger challenge.

Here are the issues on policy makers' radar screens, and what could be done about them:


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The Conference Board of Canada, an Ottawa-based research group, argues businesses must be masters of their own fates, no matter how shell-shocked many remain because of the recession. The Board will soon be launching a centre on business innovation, which aims to serve as a sort of incubator of 'best practices' to help companies embrace an experimental, creative culture. "Government can still do things to make Canada a more effective marketplace, like getting rid of barriers between provinces, better alignment of federal and provincial regulations, better alignment of Canada-U.S. regulation," said Glen Hodgson, the Board's chief economist. "But I think the biggest challenge, arguably, is how to embrace innovation as part of Canadian culture, and be prepared to experiment and make mistakes and have ongoing learning with business models and amongst senior management teams, right all the way through the employees.''


Businesses have been using the high loonie to buy productivity-enhancing machinery and equipment overseas, after such investment was a weak spot through much of the recovery's first year. Still, Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have warned repeatedly that those purchases must continue to ramp up in order for Canadian companies to improve their efficiency and competitiveness, both now and over the long haul as the population ages and firms are forced to do more with fewer able workers. "Successive governments, federal and provincial, in this country have taken a variety of measures to improve the environment for investment," Mr. Carney said in April. Now, companies must take advantage of those measures and the currency to keep up in the fiercely competitive global economy.


By next year, corporate tax cuts by Conservative and Liberal governments will have brought the rate paid by businesses in Canada to the lowest in the Group of Seven. Also, the accelerated capital cost allowance, which makes it easier for businesses to write off investments in new machinery and equipment, was renewed for another two years in the recent federal budget. The allowance should be made permanent because certainty is a key condition for sustained investment, says Jayson Myers, president of Canadian Manufacturers & Exporters. However, Ottawa might be wise to make the tax break conditional on a certain level of increased investment, or get more specific about what types of machinery and equipment are eligible, to ensure that companies - and the economy - are really getting the most out of the tax break.


Companies won't be able to react to change quickly unless Ottawa speeds up its processing of business visas and streamlines the regulatory process for things like opening up a new facility. "We've got to recognize we're in a global competition for business and talent that's relentless and fast-moving," said John Manley, the former federal industry minister who now heads the Canadian Council of Chief Executives. "A CEO of a company in Beijing was telling me it takes him 48 hours to get visas to bring in talent to work in his facility there. It takes us a lot longer, a lot more bureaucracy, a lot more paperwork." In addition, business leaders say Ottawa must do more to facilitate the regulatory process for foreign companies that want to set up a facility in Canada. "People come here and they don't even necessarily know who to call," Mr. Manley said.

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Export Development Canada, a Crown corporation that operates as the country's export-financing arm and has offices around the world, and Canadian embassies and trade missions abroad will be crucial to helping businesses find the sweet spots in the labyrinth of global supply chains. Many executives say Canada's overseas missions should do more to build, and continuously update, regional networks of distribution contacts as well as agents who can help companies navigate other countries' regulations. As Bill Milne, president of Alex Milne Associates Ltd., puts it, Canada needs a reliable process, through trade shows or Internet or both, to "comb for these agents almost like an export Craig's List." More urgently, according to Canada's former ambassador to the WTO, John Weekes, the government should reach out aggressively to companies that operate outside Canada's borders to get input on what issues Canadian negotiators should be zeroing in on as they work on trade deals with the European Union, India and South Korea, and in talks with Washington about how to ease Canada-U.S. commerce.


For the future of Canada's manufacturing industry, this is probably the most important link in the value chain. While much of Ottawa's investment in post-secondary education revolves around funding high-end scientific research at universities, business lobbyists argue more must be done to create a first-rate technical education system, so as manufacturers do more sophisticated work in Canada, there are enough people qualified to perform the tasks. Increased funding for community colleges, something that has started in earnest in the past couple of federal budgets, and stepped-up efforts to use college students to help companies commercialize research, would in turn prepare more Canadians for the highly technical manufacturing jobs of tomorrow. And the more people who are able to learn a range of adaptable skills, the more that will be able to find employment throughout their adult lives and thus lead financially stable, middle-class lives.

Smart employers who are thinking long term will do their best to re-train workers on the job, so they can adapt to inevitable changes to their duties that will come as products and processes evolve. And that will be essential, because the evidence is mixed on whether government support for re-training programs really helps many laid-off workers come even close to replicating their previous jobs and incomes.

Governments should continue to be there to help people who fall through the cracks when their skills and education levels aren't suited to the jobs of tomorrow. But policy makers ought to focus as much or more on helping start-up companies in the high-technology sector and other value-added niche areas, and on ensuring that the education system is adequately preparing students for the future from kindergarten all the way through to post-secondary. "We always want to be moving to where the future is, where the growth potential is, where the good jobs are going to be, so the kids growing up now in places like St. Thomas [Ont.]have the best opportunities they can," said Ross Finnie, director of the Education Policy Research Initiative at the University of Ottawa and co-author of a recent study on older displaced workers.

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